Coffee markets: New paradigms in global supply and demand

By Bryan Lewin, Daniele Giovannucci, Panayotis Varangis

March 1, 2004

The World Bank

Abstract

More than 50 nations, almost all in the developing world, produce and export coffee. A number of them are facing considerable difficulties because of the dramatic decline in the price of coffee which has fallen to its lowest levels in 30 years, and to 100 year lows if adjusted for inflation, as a result of worldwide oversupply. Some of these countries are dependent on coffee exports for a significant portion of their international trade and export income as indicated in the preliminary tables. The destabilizing effect of the price crisis has sparked concern in some of these countries that have experienced bank failures, public protests, and dramatic falls in export revenues. Between 17 and 20 million families are directly involved in coffee production. Evidence of considerable human hardships in many producing regions confirms coffee's importance as a primary-and sometimes only-source of cash income for many farmers (IDB, USAID, World Bank 2002; Oxfam 2002). Most of the world's coffee is produced by smallholders utilizing just a few hectares of land. In the past year, many reports have confirmed the heavy toll on farmers that have had to sell below cost or even give up their coffee farms because current prices do not even cover the most basic costs of harvesting and transport to market, and estimate economic losses for small coffee farmers at US$4.5 billion per year. The losses can be measured in even more profound ways. In many rural areas, the annual coffee income means the ability to pay for children's schooling, purchase basic necessities such as clothing and medicines, and settle debts